Appeals court affirmed that
a payee of a check that contained the forged signature of the boss of the
employee who forged the signature, was an innocent recipient of the forged
instrument and does not have to repay the funds to the drawer.

Topic

Negotiable Instruments/Commercial Paper

Key Words

Forgery; Conversion; Negligence

C A S E
S U M M A R Y

Facts

For three years a secretary and a bookkeeper conspired
to defraud their employer, Simmons, a lawyer, of funds he kept in various
account. His signature was forged on numerous checks drawn without his knowledge.
One check, for $13,000, was payable to Lennon, who sold a vehicle to the
secretary and received the forged check in payment for the vehicle. This
check was written and cashed more than a year before Simmons discovered
the fraud. According to Simmons, Lennon knew, or should have known that
the check was forged when he accepted it and sued to recover the $13,000.
Lennon had once been romantically involved with the secretary, who had cheated
him out of money, so he should have been on notice of her behavior and suspected
the fraud. The trial judge granted summary judgment in favor of payee Lennon.
Simmons appealed.

Decision

Affirmed. The drawer, Simmons, was not entitled
to recover against the payee. Under UCC § 3-419 the drawer may not sue the
payee for conversion of the check paid on the drawer's forged signature.
Similarly, under common law, the drawer could not successfully sue the payee
for conversion of the check. The payee owed no duty to warn the drawer of
his employee's history of forgery; there was no contractual privity between
the parties. Lennon accepted the check in good faith and properly endorsed
it to cash it. The UCC was redrafted after this incident occurred and §
3-420 was added concerning conversion, but it would not change the outcome
of the case.